Why real-time payments give the payments industry a real punch

Written by: Currencycloud

Published on: June 22, 2016

The real-time payments industry continues to live up to expectations, generating healthy returns and eating into the market share of the incumbent banks. However, few analysts could have predicted the impact that FinTech companies would have on the payment industry as a whole.

With market share and profits shrinking, the payment industry needs to make some significant changes if it is survive – starting from the inside out. Although media attention focuses on the technology aspect of FinTech success, the reality is that there are many other factors to consider. Even in the age of the unicorn FinTech companies, operational efficiencies are key to maximizing profit margins.

Everyone wants real-time!

The on-demand economy is the natural by-product of a generation that expects instant gratification. However, many payment companies are dependent on traditional systems which process payments in batches. Unable to provide real-time payment support, these systems cannot meet customer expectations. Consumers expecting instant payment processing is one thing but organizations needing to transact as quickly as possible and gain a competitive advantage is quite another.

Because the technology required to make and receive payments instantly already exists, customers are unsurprisingly choosing these services. Consequently, traditional and expensive payment providers, unable to serve real-time requirements, are being left behind. So what are the banks going to do about it? One option is the use of partnerships and leveraging the flexibility of agile technology. While established banks can leverage low cost and scalable real-time payments, FinTech partners can gain access to a wider customer base.

Adapt to the customer

The internet has made international trade virtually seamless, particularly for consumers. Buying a bag from Beijing for delivery to Birmingham takes just a few clicks of the mouse. It is so simple that consumers often don’t realise that there are complex processes running in the background to pass the order and payment from one side of the world to the other.

Because the customer expects instant worldwide payment processing, service providers are under increasing pressure to deliver. In their X-Border Payments Optimization Index report, PYMNTS.com notes:

“Pages and clicks to checkout are down. Number of payment options are up. Nearly across the board. Merchants need to keep up and continue to optimize their sites if they want to attract savvy cross-border consumers.” Consequently, payment providers face demands for real-time payments from businesses and customers.

As previously mentioned, partnerships between FinTech players and traditional banks will become vital in order to address the real-time payment expectations of their customers. By building alliances, they become stronger. Furthermore, it becomes much easier to navigate local compliance frameworks and agreements. This is critical in order to enable more time-efficient cross-border payments and bring them closer to the real-time transfers that consumers have come to expect.

Lego-like future of payments

Today’s consumer demands a personalized array of services that are easy to use and save time. This demand for customized services is at odds with the one-size-fits-all approach of traditional payment providers.

Banks will have to adopt a modular approach to service delivery, such as plugging in to distributed cloud platforms that allow them to offer a more flexible portfolio of real-time payment options. Forming partnerships with a handpicked selection of best-in-class FinTech companies will greatly increase the options that banks offer. In addition, partnerships will help to keep their setup and running costs low.

Real-time or retire

For challenger banks and established banks alike, meeting customer needs is the turnkey that will guarantee the future of their businesses. If customers demand real-time payment service, providers must deliver it or face losing their customers to more efficient alternatives such as crowdfunding or P2P exchanges.